Trends and statistics: The bank of mum and dad in today’s housing market

For many first-time home buyers, the hopes of owning their own home are quickly slipping away, which is why many are turning to Mum and Dad for a helping hand. As property prices continue to rise, the Bank of Mum and Dad is quickly becoming one of the country’s biggest lenders.

Let’s take a look at some of the current stats and trends around the Bank of Mum and Dad.

What is the bank of mum and dad?

The Bank of Mum and Dad’ is a term used to describe financial support provided by parents to their adult children, especially when it comes to helping them buy their first home. This support can take various forms, including:

• Monetary gifts: Many parents provide their children with a lump sum of cash to help cover the deposit or other upfront costs that come with buying a home. This is often crucial as saving for a deposit can be one of the biggest hurdles for first-time buyers.
• Private loans: Instead of giving money as a gift, some parents lend money to their children with an agreement on repayment terms. These loans often come with little to no interest compared to traditional bank loans.
• Co-ownership arrangements: Some parents opt to buy property jointly with their children. This can help share the financial burden and make it easier to get a loan approved.
• Parent guarantor loans: In some cases, parents are acting as guarantors on mortgages to help their children get into the housing market. This can also help them avoid paying lenders mortgage insurance (LMI) if they don’t have enough savings to cover a 20% deposit.

Not all parents can afford to help their children get into the property market. Alternatively, some parents are allowing their children and their children’s partners to live with them in the family home so they can cut back on living expenses and save more toward a home deposit.

How parents are helping out with home loans

The Bank of Mum and Dad has grown to become one of the largest lenders in the Australian property market. In fact, based on recent findings from the Productivity Commission, if the Bank of Mum and Dad were an actual lender, they’d rank between the 5th and 9th biggest mortgage lenders in Australia.

These days, it’s not uncommon for parents to assist with home loans. As house prices increase, it’s taking first-home buyers longer and longer to save up enough for a 20% deposit. With this in mind, the Australian Housing Monitor research indicates that 40% of first-home buyers are taking advantage of help from their parents to get into the property market.

According to Domain’s recent First-Home Buyer Report, it’s taking an Australian couple aged 25-34 an average of 4 years and 9 months to save the 20% deposit required for an entry-priced house. But as property prices continue to increase, it’s no wonder that many first-time home buyers are turning to their parents for a bit of financial assistance.

In terms of guarantor home loans, Aussie First Home Buyer data from 2015-2021 revealed a 71% increase in the total number of loans with a guarantor made over this 6-year period. It’s believed that the growing number of guarantor loans was due to increasing property prices.

According to AMP chief economist, Dr Shane Oliver, house prices are now about 30% less affordable than they should be. The median dwelling price across the combined capital cities is sitting at about $789,000. However, only a dwelling that costs $427,000 or less would be considered affordable to someone with a 20% deposit and average full-time earnings.

Based on these figures, it comes as no surprise that first-home buyers are turning to the Bank of Mum and Dad in droves to help them buy their first home.

Factors to consider before accepting help from mum and dad

There’s no denying that the bank of Mum and Dad can be a huge help when it comes to getting a foot in the door of the property market as a first-time home buyer. With that said, getting financial help from your parents also comes with risks that should be considered before accepting assistance:

• Financial strain on parents: Before offering financial assistance, parents need to make sure that they’re not compromising their own financial security and retirement plans.
• Relationship strain: Mixing family and finances can sometimes lead to tension or misunderstandings. To avoid potential miscommunications, use open and honest discussions with your parents about expectations and any potential changes in financial circumstances. It can also be worth setting clear boundaries to prevent financial matters from straining personal relationships.
• Legal implications: It's important for both parties to have clear agreements in place, especially if the money is being loaned rather than gifted.
• Impact on mortgage: If your parents provide you with a loan to be repaid, it’s important to understand how this loan might affect your ability to secure a traditional mortgage. In some cases, banks and lenders view personal loans as additional debt, which could impact your borrowing power.
• Default risk: Have your parents offered to go guarantor on your home loan? Take the time to understand the consequences of defaulting on the loan and how it would impact your parents’ financial situation.

Not everyone is lucky enough to be able to take advantage of help from their parents to get into the housing market. If you’re after a few tips to help you save for a mortgage, check out our guide on 8 steps to take when you start saving for a house.

Alternatively, if you’re on the hunt for a home as a first-time buyer, we’ve got plenty of resources to help you on your journey at Unloan. Get a free property report, check your borrowing capacity or apply for conditional approval with us here at Unloan. Plus, you can check out more guides on buying a home over at our Learn Hub.